May 17 (Bloomberg) -- Singapore Airlines Ltd., Southeast
Asia’s biggest carrier, fell the most in more than 1 1/2 years
in Singapore trading after lower passenger and cargo fares
pushed the company into a wider fourth-quarter operating loss.

Singapore Air slumped 4.5 percent, the most since Nov. 1,
2011, to S$10.93 at close of trading in the city. The stock has
risen 1.7 percent this year compared with an 8.9 percent gain in
the benchmark Straits Times Index.

The airline said yields will probably remain under pressure
and forward passenger bookings for the next few months are
“almost flat” compared with the year-earlier period. Chief
Executive Officer Goh Choon Phong is adding more planes,
including Airbus SAS A380s, and has upgraded business-class
cabins as he faces increasing competition from Emirates and
other airlines expanding in Southeast Asia.

“The main question is, are they able to improve passenger
yields,” said Siyi Lim, an analyst at OCBC Investment Research,
who cut his rating on the stock to sell from hold. “It’s more
of increasing competition in the space and how are they going to
deal with it. If demand doesn’t pick up, then that will be a
problem.”

Singapore Air’s operating loss widened to S$44.2 million
($35 million) in the three months ended March from S$5.2 million
a year earlier, the carrier said yesterday. Still, it had a net
income of S$68.3 million in the period, compared with a S$38.2
million loss a year earlier, as sales of aircraft and engines
helped offset the operating loss. That compares with the S$67.7
million average of three analysts’ profit estimates compiled by
Bloomberg.

Spares, Engines

Sales in the quarter fell 1 percent to S$3.67 billion, the
carrier said. Singapore Air had a surplus of S$54.7 million in
the fourth quarter on sale of aircraft and spare parts. The
gains came from the sale and lease back of some A380s and Rolls-Royce Trent engines, Goh said today.

In the year-earlier quarter, the company posted a loss from
retiring its last Boeing Co. 747-400 plane.

In October, Singapore Air ordered 25 Airbus aircraft worth
$7.5 billion in list prices, including the double-decker A380,
to replace less fuel-efficient models. The carrier also said it
would stop this year the world’s longest non-stop flights, from
Singapore to Newark, New Jersey, and Los Angeles.

“The global economic outlook remains uncertain with the
ongoing weakness in the Eurozone and sluggish recovery in the
United States,” Singapore Air said. “The cargo business faces
an additional issue of overcapacity in the market, which will
add pressure on loads and yields. Furthermore, fuel prices
remain persistently high.”

Cargo Yields

Passenger yield, the average price a traveler pays to fly
one kilometer, fell to 11.2 Singapore cents in the quarter from
11.7 cents a year earlier, Singapore Air said. Yields from
carrying cargo dropped to 33 cents from 35.2 cents.

The airline carried 4.5 million passengers during the
January-March quarter, compared with 4.34 million a year
earlier, according to company’s monthly filings to the Singapore
stock exchange. The carrier filled an average 78.6 percent of
its seats in the period, compared with 77.6 percent a year ago.

Singapore Air and its SilkAir Singapore Pte. unit would
adjust their capacities to “weaker markets” between April and
June, the carrier said.

The airline hedged 57 percent of its fuel needs for the
year ending March 2014 at an average price of $119 a barrel, the
company said in a statement today.

Singapore Air in December sold its 49 percent stake in
Virgin Atlantic to Delta Air Lines Inc. for $360 million. The
carrier had earlier written down its investment in the U.K.
carrier controlled by billionaire Richard Branson. The deal will
be completed once regulatory approval is obtained.

Qantas, Emirates

Singapore Air faces increased competition as the alliance
between Qantas Airways Ltd., Australia’s biggest carrier, and
Emirates started flights on March 31. The agreement with the
Dubai-based airline cuts average journey times by more than two
hours from Melbourne and Sydney to the top 10 destinations in
Europe.

To compete, Singapore Air last month said it will increase
its stake in Virgin Australia to 19.9 percent for A$122.6
million ($120 million). It raised its holding from 10 percent
after Virgin Australia received regulatory approval to buy 60
percent of the local unit of Tiger Airways Holdings Ltd.

Singapore Air is the largest investor in Tiger, a short-haul low-fare airline that competes with AirAsia Bhd., Lion
Mentari Airlines PT and more than 10 other budget carriers that
fly in Southeast Asia.

Last year, Scoot, a medium-haul budget airline fully owned
by Singapore Air, started flying with Boeing 777 aircraft.
Singapore Air transferred its orders for Boeing 787 Dreamliners
to Scoot.

No-Pay Leave

To cut costs, Singapore Air is offering captains voluntary
no-pay leave, similar to the offer it made for first officers
last year. The company has a “temporary” surplus of captains,
spokesman Nicholas Ionides said in January. The carrier the same
month said it will release 76 pilots who were employed on a
fixed-term basis by June 30, before their contracts expire.

Global airline passenger traffic may rise 5.4 percent in
2013, while cargo markets are projected to increase 2.7 percent,
the International Air Transport Association said in March.
Passenger traffic grew 4.2 percent in the first quarter, boosted
by the expansion of Middle Eastern and Asia-Pacific carriers,
IATA said on May 1. Cargo demand fell 1.1 percent in the first
three months.